Hefty excise hike on diesel cars coming?

Planning to buy a car and worried over high petrol prices? Well, if you are mulling a shift to the diesel version, think again. The government is planning to impose a special excise duty on diesel cars, thereby making such cars costlier. HT reports.

Planning to buy a car and worried over high petrol prices? Well, if you are mulling a shift to the diesel version, think again. The government is planning to impose a special excise duty on diesel cars, thereby making such cars costlier.

Petroleum minister S Jaipal Reddy in a June 7 letter to finance minister Pranab Mukherjee has recommended the imposition of a steep additional excise duty of Rs 170,000 on small cars and Rs 255,000 on medium and larger versions such as sedans and sports- and multi-utility vehicles.

"I request you to consider imposing additional excise duty on diesel vehicles as it would discourage dieselisation of economy and bring additional revenue, which could be used for meeting under-recoveries of oil marketing companies," said Reddy. "The difference between the price of petrol and diesel is acting as an incentive for diesel vehicle users/buyers."

The justification for a higher duty on diesel cars is that this subsidised fuel is being diverted to a section that can afford petrol cars but are going for diesel-run ones, thereby benefiting from the subsidy scheme actually meant for the agriculture and transportation sectors.

Moreover, political pressures have refrained the government from increasing diesel prices. Moreover, any increase in diesel prices has a cascading effect on the inflation since diesel has a weightage of 4.67 in the wholesale price index, the highest among the 670 commodities of the index.

Diesel consumption grew by 7.2% in 2011-12 compared to 6.2% in 2010-11, and growth in petrol consumption declined to 5.6% in 2011-12 from 10.7% in 2010-11. Moreover, with more frequent price revisions in petrol prices by oil marketing companies since petrol deregulation became effective on June 2010, the gap between the price of petrol (Rs 71.16 a litre) and diesel (Rs 40.91 a litre) has increased to Rs 30.25 per litre (in Delhi), which is encouraging further dieselisation with environmental impacts.

In his letter, Reddy cautioned that under-recoveries — or the difference between the purchase price of crude and the price at which oil marketing companies sell it for — could rise further. “Under-recoveries on diesel (are) expected to rise from Rs 81,000 cr in 2011-12 to over Rs 1 lakh crore in 2012-13 at the current rate,” the oil minister said in his letter. “Therefore we need to impose additional duty to equalise these two elements,” he wrote.